The latest in the ongoing debate about taxing cigarettes sold on Native American lands, the Senate Finance Committee Chair issued “demand letters” last week requiring that state agencies fork over everything they have about untaxed cigarettes coming into the state.

If the governor and state agencies don’t comply, subpoenas won’t be too far away, said Kruger (D-Brighton Beach, Mill Basin).

“I fear that the actions I am addressing constitute some kind of a ‘secret partnership’ to effectively stall and delay tax collection,” Kruger said. “With every day that goes by, even using the weak and ‘fuzzy math’ used by your Tax Department, triple-digit millions go flying out the proverbial window.”

Kruger believes that the state could generate about $1.6 billion a year — about half of the state’s budget deficit — if cigarettes sold on Native American lands were taxed.

Last year, he demanded that Governor David Paterson rescind a “letter of forbearance” that allows Native American tobacco retailers to avoid paying these taxes.

“The Governor has been a willing and active partner in a long-standing travesty that has hurt legitimate businesses and robbed billions from our state at a time when essential services are being threatened with deep cuts,” Kruger said.

The demand letters require the New York State Tax Department and other agencies to send Kruger’s office “books, papers, records and equipment of persons dealing with transporting or storing cigarette sales, or any person(s) having knowledge in the premises of cigarette sales tax” on Native American reservations.

Also being demanded are “bills of lading, invoices, delivery tickets, and records of cigarette orders including source, purchase price, number of cigarettes stamped and sale price.”

If these records are not brought to his office within seven days, subpoenas will be issued, Kruger threatened.

The war Kruger’s waged on untaxed cigarettes has gained some momentum of late.

While the governor balked at the possibility of rescinding the letter of forbearance and very few came out to support Kruger’s plan when it was first raised last fall, more and more people have been flocking to this particular standard.

Just recently, Governor Paterson floated the idea of taxing Native American cigarettes in next year’s budget. Those who now rally behind Kruger include State Senate Conference Leader John Sampson (D-Canarsie).

“The state’s failure to collect cigarette taxes means critical services will be cut back and the taxpayers of New York will be forced to suffer while Native American tobacco retailers flout the laws of this state,” Sampson said in a statement. “It is critical that we immediately begin to collect these rightful taxes to begin to close the growing deficit.”

New York’s Tribal Nations and Native Americans cigarette wholesalers on reservations are against the plan, although Kruger said reservation residents can get special coupons so they don’t have to pay taxes.

In previous years state officials have been hesitant to rescind the letter of forbearance, since past attempts have sparked lawsuits as well as protests by Indian tribes that one time led to the closure of the state thruway.

Kruger said that in this economy there should be no “sacred cows.”

“I don’t know one homeowner on Long Island or Nassau or Westchester County that wouldn’t go out on the Sprain Brook or the Long Island Expressway and burn some tires if they didn’t have to pay their property tax,” Kruger said in a previous interview. “And if they attempted to do it, they would be arrested.”

A spokesman for Governor Paterson would not comment if the office would abide by Kruger’s demand letters, although he did say that the governor would “make good” on enforcing new regulations issued by the New York State Tax Department.

The spokesman also said that Kruger’s predictions on how much the state can recoup from taxing cigarettes on Indian lands is off -- by a lot.

“Frankly, Senator Kruger’s estimates on this issue is wildly out of whack,” the spokesman said. “He statements have not been credible on this issue.”

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